Fitch Affirms The Farmers Exchange 'A+' IFS; Outlook Stable

  Fitch Affirms The Farmers Exchange 'A+' IFS; Outlook Stable

Business Wire

CHICAGO -- June 10, 2013

Fitch Ratings has affirmed the 'A+' insurer financial strength (IFS) rating of
The Farmers Insurance Exchange (Farmers) and its affiliated property &
casualty Insurers. The Rating Outlook is Stable.

A full rating list of rating actions appears at the end of this press release.

KEY RATING DRIVERS

The 'A+' rating reflects Fitch's view of Farmers' strategic importance as
'Very Important' to the Zurich Insurance Group (ZIG) in accordance with
Fitch's insurance group rating criteria. Based strictly on Farmers' own
financial profile, Fitch believes the stand-alone IFS rating of the company is
'A-'. Farmers' strategic importance is an important consideration toward
providing Farmers' ratings with a two-notch uplift towards ZIG's insurance
subsidiaries' ratings.

Farmers operates as a reciprocal exchange ultimately owned by its
policyholders. A separate organization called Farmers Group, Inc. (FGI; a
wholly-owned subsidiary of ZIG) serves as the attorney-in-fact for Farmers and
collects a management fee for non-claims related management services of up to
20% of Farmers' annual gross written premium. ZIG, which is FGI's ultimate
parent, recorded approximately $2.8 billion in management fees from Farmers in
2012.

Farmers ratings reflect the support and financial flexibility provided by the
larger ZIG organization. This is manifested by the management agreement
between FGI and the policyholders of Farmers, as well as by the numerous,
sizable investments made by ZIG subsidiaries in surplus notes issued by
Farmers. It is also evidenced by the existence of an all lines quota share
reinsurance agreement through which The Farmers Exchanges ceded 20% of the
company's business to ZIG and Farmers Re in 2012.

The stand-alone rating of Farmers reflects the company's strong competitive
position as one of the largest personal lines insurers in the U.S. The
stand-alone rating also takes into account Farmers' track record of stable
operating results, and high quality investment portfolio that is dominated by
highly rated fixed income securities.

These positive factors are partially offset by relatively high statutory
operating leverage and geographic concentration. Fitch also believes that
Farmers' underwriting results, which have averaged near break-even over the
past five years, compare unfavorably to several of the company's closest peers
over the same time period.

Fitch expects that ZIG will maintain its ownership in FGI and remain committed
to accessing the North American personal lines insurance market through
Farmers. In evaluating this commitment, Fitch will place particular emphasis
on FGI's earnings contribution to ZIG. Fitch will also emphasize other factors
including ZIG's willingness and ability to provide reinsurance and capital
support to Farmers if needed.

RATING SENSITIVITIES

Key rating triggers that could lead to a ratings downgrade include a downgrade
of ZIG's ratings or an indication of weakening in ZIG's willingness or ability
to provide capital support to Farmers. Moreover, if Farmers' stand-alone
credit profile were to worsen then Fitch could downgrade the Farmers' ratings.
Evidence of such deterioration would be declining underwriting results or
overall profitability, or if net written premium-to-surplus and net leverage,
were to exceed 3.0 times (x) and 6.5x, respectively, versus average levels of
roughly 2.5x and 5.5x, respectively, observed over the past several years.

Conversely, key rating triggers that could lead to a ratings upgrade center
around an improvement in Farmers' stand-alone credit profile including
improved operating performance, and improved capitalization metrics such as a
reduction in operating leverage (net written premium-to-surplus) and net
leverage ratio to below 2.0x and 4.0x, respectively.

Fitch affirms the 'A+' IFS rating for the following entities with a Stable
Outlook:

--Farmers Insurance Exchange;

--Truck Insurance Exchange Truck Underwriters Association;

--Fire Insurance Exchange Fire Underwriters Association;

--Mid-Century Insurance Company;

--Farmers Insurance Company of Arizona;

--Farmers Insurance Company of Idaho;

--Farmers Insurance Company, Inc. ;

--Farmers Insurance Company of Oregon;

--Farmers Insurance Company of Washington;

--Farmers Insurance Hawaii, Inc. ;

--Illinois Farmers Insurance Company;

--Texas Farmers Insurance Company;

--Farmers Insurance of Columbus, Inc. ;

--Farmers Texas County Mutual Insurance Company ;

--Mid-Century Insurance Company of Texas;

--Civic Property and Casualty Company;

--Exact Property and Casualty Company;

--Neighborhood Spirit Property and Casualty Company;

--Farmers New Century Insurance Company;

--Farmers Reinsurance Company;

--Foremost Insurance Company Grand Rapids, Michigan;

--Foremost Signature Insurance Company;

--American Federation Insurance Company;

--Foremost Property and Casualty Insurance Company;

--Foremost County Mutual Insurance Company;

--Foremost Lloyds of Texas;

--Bristol West Casualty Insurance Company;

--Bristol West Insurance Company;

--Bristol West Preferred Insurance Company;

--Coast National Insurance Company;

--Security National Insurance Company;

--21st Century Assurance Company;

--21st Century North America Insurance Company;

--21st Century Superior Insurance Company ;

--21st Century Pinnacle Insurance Company;

--21st Century Pacific Insurance Company;

--21st Century Auto Insurance Company of New Jersey;

--21st Century Centennial Insurance Company;

--American Pacific Insurance Company, Inc. ;

--21st Century Advantage Insurance Company;

--21st Century Indemnity Insurance Company;

--21st Century National Insurance Company, Inc. ;

--21st Century Preferred Insurance Company;

--21st Century Premier Insurance Company;

--21st Century Security Insurance Company;

--21st Century Casualty Company;

--21st Century Insurance Company;

--21st Century Insurance Company of the Southwest.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 11, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology - Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793313

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Contact:

Fitch Ratings
Primary Analyst
Christopher A. Grimes, CFA
Associate Director
+1-312-368-3263
Fitch Ratings, Inc., 70 W. Madison, Chicago, IL 60602
or
Secondary Analyst
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Committee Chairperson
Donald F. Thorpe, CFA
Senior Director
+1-312-606-2353
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
 
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